Target, Costco show there are no good answers to DEI backlash

The trend: Retailers are trying—and failing—to navigate the thorny issue of DEI.

• Target is facing calls for a consumer boycott after ending some of its diversity initiatives and stopping its participation in third-party diversity surveys, including one from the Human Rights Campaign.
• Meanwhile, Costco is dealing with a pressure campaign from 19 Republican attorneys general urging the retailer to eliminate its DEI policies.

No good answers: More retailers are backing away from DEI initiatives in response to a wave of activism from conservative investors who have been emboldened by the Trump administration’s antipathy to such policies. While that’s mostly a reflection of where the political winds are blowing rather than a repudiation of the principles of DEI itself, companies that change their policies risk considerable backlash—particularly in the case of retailers like Target that previously trumpeted their commitment to diversity and inclusion.

On the other side of the coin, companies like Costco that are sticking with their existing policies—and defending the importance of DEI—are also making themselves vulnerable to pressure campaigns by activist investors and potentially government scrutiny.

• At least in Costco’s case, its shareholders are resoundingly on its side: 98% voted to reject a challenge to its DEI initiatives, which, along with the popularity of such initiatives with its customers, should embolden the retailer to stand firm.
• But for other retailers struggling to keep pace with shifts in consumer spending, the cost of a public battle with right-wing activists like Robby Starbuck could be too painful to contemplate, making it easier to capitulate.

Our take: Unfortunately for retailers, there are few—if any—solutions for escaping the DEI upheaval unscathed.

• While companies can try to explain that the changes to their DEI policies are cosmetic, that risks incurring renewed scrutiny from conservative activists.
• Retailers that stand firm have to be confident in their ability to weather a potential boycott and legal challenges. They will also need to reassure stakeholders about the value such programs offer to their businesses.

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